How to measure the productivity of your R&D dollar

There are two main difficulties about measuring the productivity of R&D: one is the length of time from initial spend to the moment the last sales dollar is delivered; the other is the difficulty of associating inputs to outputs – how do we know that what is discovered in the R&D process has led to the creation of a saleable product?

Thirty-year Analog Devices’ veteran Gerald Dundon has cracked this very tough nut in a book called R&D Productivity: How to target it. How to measure it. Why it matters.

At ADI, Dundon held the jobs of vice-president of supply chain and planning, vice-president of quality, and vice-president of new product productivity.

You would think the amount of revenue coming from new products is a valid metric for R&D efficiency but you would be wrong, says Dundon.

He regards discounted cash flow as an inadequate metric for R&D project evaluation.

He explains why R&D spend should be included in return-rate calculations, how cumulative revenue can be modelled and predicted and how product lifecycles influence target rate returns – too short a product lifecycle means you’re ‘living on the edge’, says Dundon.

This is a heavyweight book for semiconductor management and it answers one of the most difficult questions the industry has to face: how do you create a business out of R&D.

 

david manners

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